Australian Superannuation Investment Options

Today I am going to run through my superannuation investment strategy by comparing the different superannuation investment options available with one of the funds that I have money with. The reason why I am looking into this is because a colleague at work recently became interested in how his superannuation was performing, and he was a little disappointed to learn that he had most of his holdings in one of the lowest performing investment types and was not making very good returns on his money.

What is Superannuation

Firstly though, lets look into what Superannuation is all about. In Australia, Superannuation is the governments way of forcing you to save money for retirement. Employers take a percentage of your pay (normally between 9 and 15%) and put it into a superannuation fund. The idea behind this is that it is supposed to reduce the burden on the pension system as more and more people move into retirement. I’m personally hate almost everything about superannuation, but for the average person who knows very little about money management and financial planning I suppose it is a good thing for them to have.

Superannuation Investment Types

Most funds offer a number of different investment types. The common ones are:

Growth – This is your risky play, which is supposed to bring in the really big dollars.

Australian Shares – Normally this is an investment in the top 50 to top 100 stocks on the ASX. Often it will mimic the greater market.

International Shares – This could be any stock market in the world, but I have found it mimics the US stock market the most.

Balanced / Stable – This is supposed to be your low risk play that will still bring home some decent returns. It grabs a bit of all other investment types and throws them all together.

Cash Plus – With Cash Plus you are getting a little bit more than with your cash option. I assume this puts your money into term deposits or bonds to gain a little bit more interest.

Cash – Pretty much the lowest risk investment option. You will just be getting bank interest.

Superannuation Investment Strategy

When it comes to my superannuation, I work in the medium risk space. The main thing to look at is your long term retirement goals, years until retirement and your appetite for risk. Obviously if you are only 5 years away from retirement and you have a large balance, you don’t want to go and blow the lot on growth and end up with $0 should GFC mark 2 hit. Conversely, if you are 21 years old and have only a few thousand in your account, racing into the cash option is probably not going to give you much money to retire with.

For me I like to look at past performances of the different investment options and try to determine what will provide me consistent returns. The way I currently do this is by looking at the investment performance graphs which you can see below:

The returns for this fund with each investment type are as follows:

Growth – $24,053

Australian Shares – $25,594

International Shares – $13,267

Balanced / Stable – $21,561

Cash Plus – $16,493

Cash – $11,918

What I look for in the graphs is a nice linear line. I don’t want to see my investments jumping up and down like a yo yo. So while I could invest 100% of my money in Australian Shares which has performed the best, I wouldn’t be comfortable with the wild swings. So if I cast my eyes over these graphs the most linear graphs are obviously the two cash options. However, they are also the ones with the lowest returns on offer.

What to Invest in

Because I am still under 30 and have most of my working life ahead of me, I have taken a multi pronged approach. I have put around 50% of my money into Balanced / Stable investment type as it is the most linear of the higher growth investment options.Then I have split the rest between Cash Plus and Growth. Note: If I was in my mid 40’s I would probably skipped the growth option and put more in Cash and if I was just starting out I would have put none in the cash options.

Question

Do you actively manage your retirement money? What type of risk are you willing to take?

Consider yourself lucky. In America we have social security which is even worse than this because you don’t get to pick and choose which accounts you invest in. Also the money they take from you goes towards helping the retirees of today, and they are expecting to be running a deficit on this method by the time I retire (doesn’t that make it a Ponzi scheme?).

I’m with you on your strategy. I use a similar tactic with my 401k and IRA investments. I seek to invest in the intersection of the greatest return with tolerable risk. Classically this is some combination of stocks and bonds.MMD @ My Money Design recently posted..How Being Successful Might Include Leaning Out From Work

Glen, sounds like you’ve got a great strategy going there. I’d probably do the same thing if I were you. We don’t do much in the way of mgmt. of our retirement funds, simply because with the largest fund it’s a pension, so we don’t have much say in how it’s managed, and the other funds are doing well the way we’ve got them set up.Laurie @thefrugalfarmer recently posted..Hidden Tips for Saving Money on Groceries

Wasn’t aware of how this worked in Australia, Glen. Very interesting. As MMD mentioned, Social Security is much worse here. It’s broke and I’ll pay in far more than I’ll ever get back out.
Finding the sweet spot in risk/reward is what asset allocation is all about. It’s that point when the market tanks and you can still sit tight!Jacob @ Cash Cow Couple recently posted..The Value of Time

My retirement funds kind of make me cringe right now. Firstly, there’s the UK state pension which is a tiny amount per month that I’ll receive when I’m 68, this is because I’ve paid national insurance contributions throughout my working life.

Then I do have a property which I’ll be renting out but it’s complicated. Basically, I bought my parent’s house from them, it’s not worth a huge amount and they let me buy it from them with a big discount by way of a gift. I have a small mortgage on it. The plan is that my parents will live there rent free until they pass away. Then it’s mine to rent as I please and that will go towards my pension! I think of it as a savings account! I’m not sure whether it was a good decision or not but it’s better than nothing!

I hope to invest once the debts are gone and try to pay this mortgage off asap.Hayley @ A Disease Called Debt recently posted..Keep Calm and Carry On! Part 1

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